Many people struggling financially in the difficult U.S. economy are wondering if filing for bankruptcy is the right option to correct their financial situations. Those hesitant to take such a step for fear of what it could do to their future financial security may want to explore bankruptcy alternatives. One option gaining popularity is petitioning for Chapter 128 protection. In Milwaukee County alone, the number of Chapter 128 petitions doubled from 2008 to 2009 and tripled from 2009 to 2010, according to state court records.
How Chapter 128 Works
A debtor filing Chapter 128 fills out a simple petition to reorganize debts and an affidavit listing the debts he or she wishes to include. Chapter 128 covers unsecured debts such as credit cards, payday loans, speeding tickets, medical bills, late utility bills and rent payments. Debtors may not include secured debts such as mortgages and car loans. The debtor also needs to assert in the affidavit that he or she will make regular payments over the course of up to three years.
With the help of a trustee, the debtor makes a repayment plan by totaling the debts plus the trustee's fees and dividing by 36 to get a monthly repayment amount. The debtor submits the petition, affidavit and repayment plan to the court in the county in which he or she lives and the court will issue a protective order preventing interest from accruing on the debts, wage garnishment or asset attachments by creditors and utility shut-offs.
The debtor sends the monthly payment to the trustee. If a debtor fails to complete the repayment plan, he or she is liable for the interest that accrued during the time the plan was in effect and creditors are free to recommence collection actions.
How Chapter 128 Differs From Bankruptcy
There are some key differences between filing Chapter 128 and filing bankruptcy. When a debtor chooses to file Chapter 128, he or she does not need to declare all debts, assets and income as in bankruptcy. Additionally, a debtor going through Chapter 128 need not produce tax records, file income tax returns, go through mandatory credit counseling or go to court. A debtor may file Chapter 128 repeatedly, unlike limitations in bankruptcy law on the amount of time that must pass before a person may file again. A Chapter 128 should not affect a credit report like a bankruptcy does, although some have reported that a Chapter 128 appeared on their credit histories due to the unique nature of the law.
While the process for filing Chapter 128 is far simpler than filing bankruptcy, Chapter 128 does not offer all of the benefits of bankruptcy. Chapter 128 plans cannot reduce or eliminate debt in the same way that a debt discharge under bankruptcy can. People using Chapter 13 bankruptcy may end up paying only a fraction of what they owe and those filing Chapter 7 may pay nothing on certain debts. Those using Chapter 128 are still responsible for the full amount they owe.
Trying to decide between filing bankruptcy or a bankruptcy alternative such as Chapter 128 can be confusing. If you are considering filing bankruptcy, talk with a lawyer to see if that is the right option for you or if a bankruptcy alternative may be more appropriate for your situation.